Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

Ireland's Post Brexit strategy

by Frank Schnittger Wed Aug 3rd, 2016 at 03:13:21 PM EST

The Brexit vote has already had an effect on consumer confidence and investor sentiment in the UK with the Governor of the Bank of England warning of the likelihood of at least a technical recession in the near term. A prolonged period of uncertainty is unlikely to improve that outlook in the medium term, but at least the UK can use Sterling devaluation, monetary policy easing, and reduced rates of corporate tax to mitigate its worst effects in the short term. That is, however, of no comfort to Irish exporters to the UK who are heavily dependent on the UK market - especially the small and medium sized indigenous sectors of the economy.

Indeed the whole Irish economy is heavily integrated with the UK economy although that dependency has reduced markedly since entry into the EU. Exports to the UK currently amount to c. 14% of total exports  with the USA, Belgium and Germany accounting for 20%, 13% and 8% respectively. An official report for the Irish Government has estimated that Brexit could result in an average 20% reduction in trade flows between Ireland and the UK and the OECD has estimated that Ireland's GDP will be reduced by 1.2% as a result.

That official report is also pessimistic that Ireland can make up the difference by increasing its share of FDI that would otherwise have gone to the UK.  Despite the proclamations of popular economists like David McWilliams that "Brand Britain is ours for the taking", it estimates that the ability of Dublin to attract business from London will be limited by Sterling devaluation, reduced UK corporate tax rates, and a shortage of suitable office space, housing and schools in the greater Dublin area. Nevertheless, the shape of the Irish government and corporate response to the Brexit crisis (or opportunity) is now becoming clear:


Dublin in pole position to take business from City of London

As the race to capture any financial services fall-out from London post-Brexit heats up, Dublin has emerged as the second most attractive financial centre in Europe, and may stand to gain the most from Brexit, a new PwC survey says.

PwC's financial services attractiveness indicator has ranked Dublin as the second most attractive of the major European financial centres, with London in the top spot. Luxembourg, Paris and Vienna rank third, fourth and fifth respectively. Frankfurt is in seventh position.

Dublin ranked particularly strongly for the strength of legal rights, its ease of doing business, and talent. However, it was below the average score of the other eight financial centres for the availability of domestic credit for the private sector

Presumably the availability of domestic credit will not be a major factor in the location decisions of global financial services players and other major corporates. Some observers and players are already seeing straws in the wind indicating the direction in which it may be blowing:
Dublin in pole position to take business from City of London

"The UK's potential loss of EU market access, including passporting benefits, poses great uncertainty in financial markets. While Ireland and Dublin offers certainty on access to the Single Market and EU passporting, other factors such as an English-speaking, flexible and highly skilled workforce, a pro-business environment and a strong and stable legal system are also positives. Brexit is causing many uncertainties. We are already seeing some UK financial services organisations making enquiries on relocating to Ireland and only time will tell how this will develop," said Damian Neylin, PwC Ireland head of financial services.

Indeed, US fund manager Fidelity is set to move a significant number of jobs from its current operation in Surrey in the UK to Dublin - although this is said to be unrelated to Brexit - while insurer Beazley is working to get European insurance licences for its Irish reinsurance business to allow it to operate throughout the European Union.

Ken Owens, PwC Ireland Brexit leader for financial services, says PwC is predominantly seeing enquiries in the areas of banking, management companies in the asset management industry and MIFID (Marketing in Financial Instruments Directive) firms.

Given that the UK attracts c. €30 Billion in FDI each year to Ireland's €5 Billion, it would take a transfer of only a small part of the UK's share to Ireland to make a major difference to the Irish economy. However we are talking longer term here whereas the effect on exports is much more immediate. The Irish economy was estimated to have grown by 7.8% last year even before that figure was upgraded to a ludicrous 26% GDP growth due to the activities of major corporates re-locating their IP, contract manufacturing, and aircraft leasing balance sheets to Ireland, and so some cooling down of the Irish economy in the near term may not be altogether a bad thing. We do not want a return to the boom and bust days of the Celtic Tiger.

Bertie Ahearn, disgraced former Taoiseach in the boom to bust years used to gauge the health of the Irish economy by looking out his office window and counting the number of cranes in operation.  At least he wasn't relying entirely on those dodgy GDP figures. As I write the Dublin sky line is beginning to fill up again, partly to address a chronic Dublin housing shortage, but also, I suspect, to meet an expected boom in the demand for high end office and executive accommodation post Brexit. The UK has been warned: it is in your interest to expedite the Brexit negotiations as quickly as possible and to retain access to the Single Market for financial services if at all possible.  Dublin does not share your anxiety about foreign immigrants.

However the effect on the Irish economy of an FDI boom would be very asymmetric, exacerbating the already apparent tendency to grow Dublin relative to the more rural regions of Ireland. In addition, the small and medium indigenous enterprises (mainly in the food sector) who are heavily dependent on trade with the UK and who are vulnerable to devaluation as well as Brexit are predominantly located in more rural areas. Krugman has an interesting piece up on how the impact of the internet has not had the expected effect of advantaging more rural areas relatively to big cities. Instead, he argues, it has facilitated the unbundling of previously integrated head office functions with HQ's often moving back to the City while back office functions and customer service centres remain decentralised. If these trends are realised, the Irish Government will face a very disgruntled rural electorate unless it can redirect significant investment and jobs their way.

The other problem with any resultant growth in the globalised sector of the Irish economy is that it will make the Irish economy even more dependant on foreign owned as opposed to indigenous businesses. What can come in quickly and easily can also leave quickly and easily. To date, that has not been much of a problem as relatively few major global corporates (notably Dell) have significantly divested from Ireland, and that has often been for reasons of corporate decline rather than relocation elsewhere. However we should be under no illusions that any businesses attracted to Ireland due to Brexit will prove to be any more loyal to Ireland than they were to the UK if the going gets tough.

One of the longer term implications of Brexit is that Ireland will lose a close ally (and common law partner) within the EU. Ireland's low corporate tax rate and general economic development model will come under much more pressure from an EU sans the UK. Brexit may also therefore herald the end of a prolonged honeymoon period in Ireland's membership of the EU. And that is even before we address the thorny issue of Northern Ireland. We live in interesting times...

Display:
Bank of England cuts interest rates to 0.25% - RTÉ News

The Bank of England has cut interest rates for the first time since 2009 and said it would buy £60 billion of government debt to ease the blow from Britain's June vote to leave the European Union.

The central bank said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year, and lowered its main lending rate to a record-low 0.25% from 0.5%, in line with market expectations.

But it also launched two new schemes, one to buy £10 billion of high-grade corporate bonds and another - potentially worth up to £100 billion - to ensure banks keep lending even after the cut in interest rates.

Most MPC members also expected to cut Bank Rate again this year to a rate "close to, but a little above zero", if the economy performed as poorly as forecast.

"Following the United Kingdom's vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly," the central bank said in its quarterly Inflation Report.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 4th, 2016 at 11:54:28 AM EST
Ireland should urgently consider trying to make the area around Shannon airport the new commercial/financial centre with a lot of inducements not to go to dublin. Dublin would be wrecked by the sort of construction lunacy we see in London.

It would also have a mssive impact on tourism as all of the nice bits of Dublin would be gentrified in a decade and people would be priced out. Especially as commuter services around dublin are quite inadequate and badly co-ordinated.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Aug 4th, 2016 at 12:39:12 PM EST
Except that Shannon isn't even a peripheral part of the world-city and thus is almost entirely unattractive to staff. Dublin's bad enough.
by Colman (colman at eurotrib.com) on Thu Aug 4th, 2016 at 12:49:59 PM EST
[ Parent ]
One of Krugman's points is that Core HQ functions are moving back into big city centres because they offer an attractive lifestyle to high earning executives who are not deterred by high rents, and non-core functions are unbundled to peripheral areas where lower earning staff can afford the rents.

Shannon might be a possible location for unbundled non-core HQ functions but self-proclaimed high flying executives will find even Dublin quite a come down from The City.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 4th, 2016 at 01:24:54 PM EST
[ Parent ]
I suppose: I guess there are enough fancy hotels in the area to make roughing it a bearable adventure if they have to make the occasional visit from civilisation.
by Colman (colman at eurotrib.com) on Thu Aug 4th, 2016 at 02:32:17 PM EST
[ Parent ]
Ireland used to have a National Spatial Strategy, but not much has been heard of it since the demise of the Celtic Tiger.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 4th, 2016 at 01:32:30 PM EST
[ Parent ]
If you forget about the 19th C model of the world as a collection of nation states and look at it as  one big networked city with assorted hinterlands (some of them geographically in the same place as the network sites) it will make a bit more sense.

So you have part of Dublin that is often more closely networked into London/New York/San Francisco/Brussels/Paris/Berlin/Beijing than it is to Trim or Sligo and you have hinterlands supporting that city both within Dublin - the permanent underclass - and the rest of the country.

The Internet makes it possible to for the hinterlands to supply more  services to the City, but it also tightens the City's internal links.

[Keep meaning to write coherent version of this. Too busy today.]

by Colman (colman at eurotrib.com) on Thu Aug 4th, 2016 at 12:59:32 PM EST
Should Ireland want the financial district of London?

Yes, it brings high-paying jobs, but it also brings political pressure to cater to finance and takes resources that could be used in productive sectors of society.

by fjallstrom on Thu Aug 4th, 2016 at 01:41:06 PM EST
And one not really being asked or answered in Ireland at the moment. The Irish International Financial Services Centre allegedly provides 35,000 jobs and generates €2.1 Billion in income p.a., but has also caused Ireland significant reputational damage when some of its businesses went spectacularly bust in the aftermath of the financial crash.  We simply don't have an adequate regularity system or supervisory capabilities or will to properly control it's activities. Yes the Central Bank and Financial Services regulator have upped their game since the crash somewhat, but we have a long way to go.

As Helen suggests, a rapid expansion could also lead to an uncontrolled gentrification of the inner city and other socially undesirable trends...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 4th, 2016 at 01:56:23 PM EST
[ Parent ]
Oh, it's being answered: the property funds are revving up rapidly, the architects are getting calls, the price of building is rising rapidly (a school build I'm familiar with has had to rebudget twice this year!).

A lot of well-connected people want it, so we're going to get it.

by Colman (colman at eurotrib.com) on Thu Aug 4th, 2016 at 02:29:59 PM EST
[ Parent ]
Beware the Anglo disease...


"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Thu Aug 4th, 2016 at 05:25:57 PM EST
[ Parent ]
It has only been in remission since '07-'08.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 5th, 2016 at 02:30:22 AM EST
[ Parent ]
Ireland has to be careful not to become the next Iceland, but it should want the business.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Aug 5th, 2016 at 08:14:18 AM EST
[ Parent ]
Maybe, but post-crash Iceland is a country we should all be trying to emulate.

And getting to the quarter finals of the european championship would be nice for tohers as well ;-)

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Fri Aug 5th, 2016 at 06:08:20 PM EST
[ Parent ]
Well, Ireland has recently jailed some bankers, but I don't really think they have yet learned basic lessons about regulating banks.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 6th, 2016 at 04:38:13 AM EST
[ Parent ]
I mean pre-crash Iceland, of course.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Aug 6th, 2016 at 05:50:57 PM EST
[ Parent ]
FWIW: PwC Global Economy Watch points to Ireland's potential


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Aug 5th, 2016 at 08:07:32 AM EST
My, that is an interesting study in how to do studies...

As you may see, only ONE of the nine cities is "above average" in the % of total GVA from FS.
That city is Luxembourg.

What that means is that they probably did not even calculate the average (much less the median among the cities) over the total GVA, they did it city by city and averaged that.
So Luxembourg, which must have an unbelievably high % as it is essentially dedicated to tax evasion and is tiny, brings the average over the 9 to such a high number that no other can reach it - kind of making the segmentation useless.

Now, for the strange "Strong legal rights mean that parts of the legal system facilitate a high degree of access to credit", I wonder whether that could not be rephrased as "Strong legal rights mean weak legal rights"

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Aug 5th, 2016 at 09:46:28 AM EST
[ Parent ]
In general I take such "studies" as marketing exercises for their commercial sponsors designed to drum up business for their corporate re-location services. At best, they are loss leaders with some genuine insight, and at worst they are a total fraud.  Whatever the quality of their methodology, they are important in that they can influence popular and corporate perceptions of what cities are "on the up" and in determining which cities get on the short list when corporate location decisions are being researched.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 6th, 2016 at 09:23:59 AM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]